Lehman Brokerage Payout Nearer After $38 Billion Pact

Brokerage trustee James Giddens, who is facing payment demands by New York hedge fund Elliott Management Corp., said the brokerage approved a $7.5 billion customer claim by Lehman Brothers International Europe, plus income of $600 million, with another approved claim of $500 million by the affiliate. Photographer: Andrew Harrer/Bloomberg

Oct. 6 (Bloomberg) -- Defunct brokerage Lehman Brothers
Inc., which hasn’t paid hedge funds after four years in
liquidation, is nearer to making them whole after reaching a
“critical milestone” in settling a $38 billion dispute with an
affiliate, the trustee said.

Brokerage trustee James Giddens, who is facing payment
demands by New York hedge fund Elliott Management Corp., said
the brokerage approved a $7.5 billion customer claim by Lehman
Brothers International Europe, plus income of $600 million, with
another approved claim of $500 million by the affiliate. The
brokerage will get a general claim against LBIE of $4 billion,
he said in a statement yesterday.

“This is a critical milestone for customers because, if
approved by the court, the agreement sets the stage for
distributions that will provide for 100 percent recovery of
customer property,” he said. “The agreement resolves tens of
billions in claims from LBI’s largest single customer claimant
and will allow for customer and creditor distributions much
sooner than if LBIE’s claims involving hundreds of thousands of
transactions were litigated.”

The brokerage and its parent, Lehman Brothers Holdings
Inc., have been disputing for years the claims filed against
them, with some of the largest coming from former affiliates.
Giddens has said that LBIE, the Lehman parent and the Swiss
affiliate had the largest claims against the brokerage.

The Lehman brokerage will settle a $6 billion claim by the
Swiss affiliate, granting a $190 million customer claim and a
$360 million unsecured creditor claim, Giddens said in a federal
court filing in Manhattan on Oct. 3. The settlement with Lehman
Brothers Finance AG will help the brokerage trustee to pay hedge
funds and banks “as soon as possible,” he said.

First Payment

The Lehman parent made its first payment of $22.5 billion
to creditors last April, about 3 1/2 years after filing the
biggest U.S. bankruptcy in history on Sept. 15, 2008, and a
second payment this month of $10.2 billion. The brokerage
collapsed four days after the parent and is being separately
liquidated by Giddens.

Elliott demanded in June that Giddens pay an initial $3.2
billion soon. Giddens responded by saying Elliott is a “claims
trader,” or buyer of claims in the secondary market, and
doesn’t share other customers’ interests. Last month, two
creditor groups sided with Elliott, with an unofficial group in
favor of giving Giddens just 60 days to resolve claims with the
European affiliate. The official group didn’t set a deadline.

LBIE originally wanted $15.1 billion for customers and
$8.9 billion for itself, according to Giddens. The brokerage is
giving up an unsecured claim against LBIE of $13.8 billion, he
said.

Paid in Full

Customers, including banks and hedge funds, would be paid
in full, he said.

Jake Sargent, a Giddens spokesman, wouldn’t say if the
trustee had set a date for the first payment or how big it would
be. “The size and timing of distributions depend on finalizing
this agreement in principle, due process for all parties and
court approval. The trustee is focused on moving efficiently
through this legal process to clear the way for distributions,”
he said by e-mail. Giddens transferred most of the brokerage’s
retail accounts to Barclays Plc in 2008.

The Lehman brokerage liquidation is Securities Investor
Protection Corp. v. Lehman Brothers Inc., 08-01420, U.S.
Bankruptcy Court, Southern District of New York (Manhattan). The
parent’s case is In re Lehman Brothers Holdings Inc., 08-13555,
U.S. Bankruptcy Court, Southern District of New York
(Manhattan).